New state court rules help keep lid on e-discovery cost

May 31, 2009
| By Pete Daly |
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Back in the day when business information and communication only involved ink on paper, the discovery process in civil litigation was pretty much a matter of rummaging through filing cabinets, and the cost was clearly limited.

Now, with information and communication in electronic formats, in some cases there is practically no end to the searching for electronically stored information, or ESI, that one could do in response to discovery requirements. Discovery is the legal process by which data or documents that figure in litigation must be provided to the opposing side prior to the trial.

The quest for its ESI has resulted in huge sums of money spent by major corporations on e-discovery, searching company computers, laptops, employees' computers at home, e-mail accounts, BlackBerrys, cell phones, printer/fax machines with memory, and servers.

"The good old days of looking in desk drawers and warehouses are gone," said Derek S. Witte, assistant professor at the Thomas M. Cooley Law School in Grand Rapids. He was the moderator at a seminar on Michigan's new e-discovery rules, held in May at Cooley.

Large cases in federal courts may still require significant expense for finding and producing e-discovery, but the new Michigan court rules introduced at the start of this year will help keep a lid on those costs in small cases.

Curt Benson, an associate professor at Cooley and a member of the panel at the May seminar, said a judge may be asked to rule that certain ESI is "inaccessible" if it costs a large amount of money to retrieve it. But the rules also allow the requesting party to argue that there is "good cause" for revealing that evidence in court.

In some cases, the court may even order both parties to split the cost of producing the ESI.

Attorneys now must understand the computer systems involved "as a core competency issue," said Benson.

Michigan Circuit Court Judge Christopher P. Yates, also a panelist, said state courts are "just at the nascent stage of this (e-discovery) process." Some Michigan counties, in fact, probably have no provisions yet for the e-discovery process, he said.

"One of my main concerns will be cost containment," said Yates, noting that in federal cases, the cost of e-discovery has at times almost seemed like a "war of attrition" where attorneys force the other side to pay prohibitive costs to produce ESI.

Yates is a big believer in pre-trial conferences in cases where e-discovery will be involved, to reach agreements that will help avoid motions later on that slow down the proceedings. For example, format of the ESI to be turned over to the other side is very important, because the lack of required software can be an expensive issue.

Bryan R. Walters, a Varnum attorney who specializes in e-discovery, said much time and tens of thousands of dollars can be wasted if there is no pre-trial agreement on the format the ESI must be produced in, or if metadata is relevant to the case. Metadata is the information behind a data file that describes characteristics of its origin: when it was created, by whom, when it was last opened or revised, its original format, how long someone worked on it, etc.

Metadata is "sometimes where the juiciest information is," said Walters. Other times, it may be irrelevant.

The Michigan rules now state that "absent exceptional circumstances," a court may not impose sanctions on a party for failing to provide ESI that was lost "as a result of the routine, good-faith operation of an electronic information system."

But woe to the company that destroys ESI after potential litigation is known, whether through carelessness or in outright defiance of an e-discovery request.

In an interview with the Business Journal after the Cooley seminar, Andrew Reisman said cost of e-discovery can be looked at two ways: "(There is) the cost associated with doing it right, and then there is the cost associated with getting it wrong."

Reisman, who was also a panelist at the Cooley seminar, is the president of Elijah Technologies, a Chicago-based legal technology firm that specializes in computer forensics, e-discovery and document management needs of legal professionals. The firm has an office in Grand Rapids as well as Detroit and Milwaukee.

A company that "does it right," said Reisman, would seek advice to put together a plan in advance of a litigation hold, which is the point where that company learns it may be sued. The company "would basically create a road map of where its electronic data resides and how it's maintained," he said. That includes an understanding of when it can destroy its ESI, "and how to go about putting a halt on that" as soon as litigation is anticipated. It's "basically getting all their ducks in a row for when they are actually going to have to produce electronic documents," he said.

The second step is actual production of the data sought by the opposing legal team, which will include "filtering" the data either manually or electronically. As an example, Reisman said that if there were five people at a company involved in a lawsuit and the opposition requests their e-mails, manually weeding out irrelevant e-mails "could take an extensive amount of effort, depending on how many e-mails you're talking about." An alternative is the use of technology to filter it, based on keywords or dates.

The next step requires the company to produce the ESI to give it to the opposing attorneys in a "database that is searchable," he said. Those forms could be images of the pertinent documents or "native files" in the computer program they were created in.

As for actual dollar cost in an e-discovery process, Reisman said it ranges widely but the cost of compliance could be as little as a thousand dollars for one gigabyte of data. Then there is the legal cost above and beyond that, necessitated by having an attorney review the collected data to make sure they are relevant and do not contain any privileged information.

"That’s on the very small end," said Reisman. "On the large end, there are companies that spend hundreds of thousands of dollars, and in the largest cases — Fortune 100 corporations — it can be millions of dollars."

One gigabyte is generally said to represent thousands of pages of data, which, as a rule of thumb, is about the size of "an average e-mail account," according to Reisman. But an e-discovery process involving a large corporation could entail terabytes of data, equal to "many, many millions of pages of data," he said.

"You would kill a small forest if you tried printing that out," quipped Reisman. The legal team seeking the ESI in discovery "can ask that it be printed to paper, but the other side can balk if that's a crazy amount of data," he added. So now, much is never printed but reviewed electronically as image files, which are turned over on CDs or DVDs.

E-discovery costs can grow fairly huge, said Reisman, "but the cost of doing it wrong, even in smaller cases, can be staggering," because the consequences of inadvertently changing or destroying important data "can lead courts to impose very severe sanctions, all the way up to dismissal of a party's claims or an entry of judgment in favor of the other side."

Reisman, who is a attorney as well as an IT expert, said a major mistake some companies make is when management tries to collect and review its ESI "before they get an expert involved. In doing so, they frequently inadvertently destroy data or change data that could have otherwise helped them win their case, or now puts them in a position where they are spending vast sums of money trying to defend against claims of data destruction, instead of fighting on the merits of their case."

For example, there is the date macro, which can be sort of a small landmine. Here is a possible scenario: Before they've hired an e-discovery professional, employees of a company facing a lawsuit "start browsing around," said Reisman, innocently looking at ESI documents and data that figure in the impending legal action. The date macro shows when the document was last opened — and it is automatically updated every time the file is opened.

In a trade secrets misappropriation case, the issue may be determining when a former employee last opened a trade secrets file before he left the company. That date would be in the date macro. If someone else opens the file later — it's now redated, and "You've just walked all over key evidence," said Reisman.

"That ultimately is where the real dollars get spent. There is money spent on e-discovery just like there was money spent on paper discovery, but it's so much more difficult to inadvertently destroy a piece of paper. You'd have to spill coffee on it," joked Reisman. "Whereas electronic documents are so fluid — it's much easier to make mistakes producing electronic documents."

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